The Motley Fool

Thinking of investing in buy-to-let? You need to read this first

The idea of owning your own property portfolio may be a dream for many investors, but is building and operating a bricks-and-mortar empire all that it’s cracked up to be?

Well a recent report conducted by Foundation Loans and BVA BDRC, one which surveyed 738 existing landlords in June, suggests that the answer could be a hearty ‘NO!’

“Our survey says…”

According to trade bible Mortgage Solutions, a whopping 50% of those questioned said that they wouldn’t enter the buy-to-let market as of today. They cited recent government intervention and regulatory changes affecting the sector (such as hikes in stamp duty and the phased reduction of mortgage interest tax relief) and the subsequent impact on returns as critical reasons why confidence in the sector has dived of late.

Commenting on the data, Jeff Knight marketing director at Foundation, said that “such measures were always going to have a real influence and they have undoubtedly resulted in a large number of so-called amateur landlords either selling up or not being able to go ahead and add to portfolios.”

Increased tax bills aren’t the only reason why landlord sentiment has turned sour, however — that Foundation report indicated that broader economic uncertainty is also playing havoc with the sector.

A better buy

Recent figures on buy-to-let mortgage approvals illustrate just how far buy-to-let confidence has soured, the latest of which from UK Finance showed a 3.6% year-on-year decline in loan applications for home purchase in July (to just 5,300).

Why take a chance on this increasingly problematic and costly investment class when there are many better ways to make your money work for you. Indeed, if you’re looking to grab a slice of the UK property sector, then housebuilder Inland Homes (LSE: INL) is a much better way to try to get rich than buy-to-let investment, certainly in this Fool’s opinion.

There’s a reason why the construction colossus has seen its share price balloon in 2019 (up 33% since January) while sentiment for the broader sector has plummeted of late: investors are pumped by the AIM company’s long-term profits outlook in the South East of England.

A major driver for the Inland stock price during the summer has been the receipt of planning approval for it to build 350 homes, and adjacent commercial and community premises, on the 100-acre Wilton Park site in Buckinghamshire — a site described as “the best residential opportunity in southern Englandby Savills — and the subsequent approval to build 1,725 homes and other facilities at its Cheshunt Lakeside in Hertfordshire.

In a nutshell, the country’s shocking homes shortage is no more problematic than in the Home Counties and London where population growth and economic expansion is the strongest. And clearly Inland Homes is in the box seat to lasso these trends and generate some serious profits in the years ahead, assisted by its plans to supercharge build rates (it’s aiming for 1,000 new homes by 2021).

And in the near term, City analysts are expecting earnings to rocket 13% in the fiscal year to June 2020 alone, expectations that lead them to believe that another weighty dividend rise is predicted as well (resulting in a chunky 4.4% forward yield). So forget buy-to-let, I say, as Inland Homes is a much better way to generate some serious returns in the coming years.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Inland Homes. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.